Rising input costs and supply chain snarls will impact the EV transition for both Ford and GM, cautions Wells Fargo analyst Colin Langan.
Ford Motor (F) – Get Ford Motor Company Report shares moved sharply lower Thursday, with its larger rival General Motors (GM) – Get General Motors Company Report following suit, after analysts at Wells Fargo issued a rare ‘double downgrade’ on the U.S. automakers, citing cost and supply chain pressures that will blunt their planned transition into electric vehicle production.
Wells Fargo analyst Colin Langan slashed his price target on Ford by half, to $12 a share, and lowered his rating two notches to ‘underweight’ from ‘equal weight’, noting the carmaker needs to “higher investment in the supply chain to ease the pricing concerns” that could impact production of its signature F-150 Lightning electric pick-up.
Ford, for its part, said last month that pricing power and robust demand, particularly for its just-launched F-150 Lightning, would offset supply constraints and the impact of Russia’s war on Ukraine as it stuck to its full-year operating earnings forecast of between $11.5 billion and $12.5 billion.
CEO Jim Farley, however, said that the carmaker’s “major focus now is accelerating a more fundamental change in our supply chain management”, adding that he’s absolutely committed to unlocking value by improving our growth profile, our profitability and ability to generate sustainable cash flows from our automotive-related businesses.”
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Langan also issued a double-down grade on General Motors, taking the carmaker to ‘underweight’ with a 55% reduction in the target price, which now sits at $33 per share, citing similar cost concerns linked to its shift into battery electric vehicle production.
Nickel prices, a key component in battery production, have risen 33.8% so far this year to around $27,700 per ton on the London Metals Exchange, while battery-grade lithium carbonate prices are up around 60% from early 2021 levels.
The analyst also noted wage increase concerns as the group moves to negotiate a new labor agreement with the United Autoworkers Union for the coming year.
Earlier this week, in fact, GM agreed a new contract with the independent SINTTIA union in Mexico, where CPI is running at a two-decade high, that union officials said “includes an economic package of salary increases and economic benefits that is above inflation.”
Ford shares were marked 4.75% lower in pre-market trading to indicate an opening bell price of $12.22 each, a move that would extend the stock’s year-to-date decline to around 41.7%. General Motors shares, meanwhile, fell 5% to $35.41 each.
